327. The Late Stage Reset, Competing with Tiger, and Last Mile’s Unit Economics (Steve Sarracino)

Steve Sarracino on TFR

Steve Sarracino of Activant Capital joins Nick to discuss The Late Stage Reset, Competing with Tiger, and Last Mile’s Unit Economics. In this episode we cover:

  • Launching a Growth Fund & The Late Stage Repricing
  • The Economics of Full Stack Delivery Startups
  • Why Europe Maybe the Next Leading Market
  • The State of Ecommerce & Unbundling Amazon

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Transcribed with AI:

Steve Sarracino joins us today from Greenwich, Connecticut. Steve is founder and General Partner at Activant Capital, a global investment firm with $2.1 billion AUM, he has led investments in Bolt, Deliverr, and JOKR. Steve, welcome to the show.

Thanks for having me, Nick, good to see you.

So tell us more about the firm and what you built at Activant.

Yeah, I appreciate that Nick. I mean, I thought if we kept our heads down and, and make good investments and partner with great founders and put up good numbers, people would eventually find out about you. But that’s, that’s not always the case in our business. You know, guys started the firm in late 14, early 15, when we raised our first fund, and up before that, I was actually doing deal by deal, which is the hard way to invest, as you know. So finding a great investment and collecting the capital raise our first fund and 15 was 75 million for growth strategy we made for investments. So it’s a bit of a white knock color. And it’s all across the commerce stack. And we think about commerce job making moving by and then the consumer experience. And so that’s everything from manufacturing, digital and physical manufacturing, supply chain logistics payments, FinTech, blockchain, to fulfillment to the consumer experience, like b2b to see. And the bet was, this market is gonna rip for the next 40 to 50 years as consumers change the habits and the ways in which they buy and sell goods and services. That’s it. And so we’re trying to power everything behind that. In that world, we are well known, we’ve got a few just absolutely fabulous portfolio companies, our partners, you know, over time, we’ve grown the, the capital base, we raised our second fund and 19, another fund and a couple years later, and we’re in our fourth fund now, which is 400 million. But we still we still offer a very concentrated approach to portfolio construction. So I believe, you know, the, the best way to outperform is to concentrate. I’m not the only investor to believe that. And so you know, in our world, it can be tough. You don’t always start out with a big check, we’d like to start with or medium sized check, maybe we’re in A or the B or the C round, and then we position size build over time, that could be leading, like subsequent rounds, by secondary or fully registered as an RA. So we have a lot of flexibility around the way we invest. Three offices — we’re in four — Greenwich, Connecticut, New York, Berlin, and Cape Town.

Wow. Okay. And your background was private equity prior to launching the firm?

It was private equity, investment banking, I was at a firm called Robertson Stephens. Way back in the day, it’s one of the foreword is actually the best of the Four Horsemen. We were taking companies like Pets.com, public in 99. So when I got the first taste of commerce, and then my first big recession, I was walking around the streets of San Francisco and no one with a lot of other people in our firm shut down.
Crazy. You said you started with SPVs? Did you start finding opportunities into that eventually kind of roll into a full time career and funds? Or how did it play out?

Yeah. So in 2010, or so that unfortunately, I was, I was another private equity firm, I was pushed out, probably for good reason. I tend to be very opinionated neck. You know, my wife looked at me and said, You always wanted to start your own firm, why don’t you do it, but in 2010, is very difficult for someone in their very early 30s to raise capital. So I started deal by deal and did it the hard way, the slow way. And so I was called the old ideal. It’s like the Navy SEAL version of our world. Because you got to kind of you got to execute the plan perfectly, right? You got to find the investment. And you tell the founder, like I’m gonna go raise the money. But you know, they’re really Betting on you to get the round done. And then you got to go raise the capital, and the capital providers need to look at your work at this. You’re just kind of trying to push us all towards a closing and it’s pretty difficult, but we made seven I think investments, doing that and then went back to the group that we made some money for, and they were kind enough to back us in our first fund.

It’s a juggling act. Right? We started out with SPVs too, we did 10 of them. I remember years later meeting with a prominent VC in Boston. And he said, Oh, you guys did a backwards you started with SPVs and then raise the fund. He’s like, we’ve always done funds and then you know, we’ll tack on SPVs later. I had never thought of it that way. But hey, a few different ways to skin this cat and get your start in the industry.

Exactly. I you know, I we’re seeing a lot more of the SPVs these days and people like kind of the nonsense collateralize exposure to single assets. And I think you and I did it the right way, though neck, because we start single asset to the different mindset. Because if one of those goes to zero, right, because you’re doing them in serial not parallel, your business can be over. And so sort of that underwriting DNA that you and I have is very different than people that just start out with the fun. And they’re thinking about portfolio construction very differently, or loss ratio today is still zero, across the board. Now, the markets rep. That’s been a lot of luck. We’ll see how we do over the next couple years. But again, I think that DNA is really special for firms like ours.

So talk to me more about portfolio construction deployment period, right? Are you sticking with four investments for fun, Steve?

No, I can’t take that stress anymore. So in fund, the fund three, we had six core investments. And this is fund four we’ll probably have 10-11. And I think 12 is about the right number, we spent a lot of time with our companies. And so we can only have so many given the size of our team. But I’m a big believer, I used to this is sort of some of the lessons I’ve learned over the years is when people would ask me about portfolio construction fund wanted to, I would talk micro, it’s all bottoms up, we just find the best assets and invest of them. We don’t really think about portfolio and very different view today, I think portfolio construction can actually drive a lot of the sort of alpha that you and I generate as investors. And most of that comes from really thinking through when to scale and some of our companies and how to scale in and where we concentrate. And then where we take a little bit of risk. And so we watch very closely a few stats who like median revenue growth, median revenue, median pre money, right, and because statistically, the median pre money valuation or enterprise value is where an ROI and Growth and Tax you’re going to drive, you know, statistically a lot of your return. And so portfolio construction is really important when you concentrate too, you just got to pay attention to it.

Without showing all your cards, can you give us like a range that the pre money’s often fall within?

Yeah, so our median pre money right now I think is running at about across the entire portfolio of 300. I think. So we just looked at that we were just chatting, we had our LP meeting in January. And so we ran a lot of numbers, but we’re about 300, and might have been 280. And you know, we go as low as 80 100, we’ve gone as high as several billion. And so I really like the balance, the smaller checks with a little bit more risk with the larger ones that are a little bit more stable, obviously, in sectors, you know, and so you can, you get to know the sector well, and you’ve done a few made a few investments around the sector, it’s a little easier to lean in on like an A or B, where others might think there’s more risk. It’s funny, in the old days, 10, 15, 20 years ago, B was always kind of like the last round, and the way things have shaped up is like, I feel like bees like the infection round now, like, that’s around where you can really lean into get some ownership, you know, really helped drive the business, and be a big part of it versus like A or C or D. So like we you know, I think our media and sort of entry is kind of B, B and a half.

Give us more color on that. Right? We often focus on the early stage on that show, that’s what I do, like, divide your pre money by 100. And that’s about where point is, I think our average pretty money across the portfolio is like 4.2, 4.5. So but you know, I’d like to hear more about this inflection point, you know, this critical point at the B stage. You know, what are the major challenges faced by founders at this stage? And, you know, how do you help amplify and get them to that, you know, next level of scale?

They fall in a few categories, the big one is always team is that original team that grow with you to the next stage as you scale. And what we found is like, it’s funny, like, early in my investing career, I was really focused on founder and team. And then in the middle of my investing career, I was really focused on business model and margins. And now we’re just back to team again. And so it’s, you know, we have internal resources to help on scaling the team. And then, you know, the finance and monitoring functions tend to be weak. And it’s you are what you measure. And so we’ll actually put people inside the business to do that. But a few of our companies, we have an office in their office. So we’ve, we’ve worked within one finance, our operating partner right now as head of HR, one of our companies, our talent partners, head of HR, and another one of our companies. So those two areas happen all the time, then you have acquisitions, your product strategy, and then the beauty of being focused on a sector of commerce is we can make a lot of this dive interest. So we approach it like a private equity firm. And the only way we can do that it’s not magic. It’s it’s really like being sector focused, knowing the sector and knowing the players in the sector. And it doesn’t mean the other competitors. It’s like, who are the big companies in the sector and just concentrating so If you have six assets that are tutor $50 million, fund three, you can spend a lot of time with your companies. Granted, sometimes it can annoy the founders, but generally we’re just there to be supportive and like a support function. It is differentiating, I was actually talking today to somebody at a one of the large crossover funds, and they love when groups like ours are in sort of the earlier stages, because they know, like the governance is going to be there, the way they measure the cadence of reporting is going to be there. And so we try to put a lot of that big company of the structure, but the challenges come down to people at that inflection point, sometimes competition, you know, we’ve over emphasized product like differentiated products really important. But so as differentiated marketing, and market reach, to me the hardest part about the businesses that scaling, starting is really hard to but it’s different type of challenge.

Steve, how long are you tracking these businesses? You know, prior to engagement? And then prior to investment?

Great question. So nine months is our median track time, just about enough time to build what we call the counselor relationship with the founder, I think that’s the most powerful way to invest in an asset, you know, the counselor relationship, you’re not on the board, you can just be helpful, you can make intros, you can be there for them, you know, sometimes you can be helpful, sometimes we can’t. But that relationship to me is what ends up into a world where you’re pre empting, around the most rounds, we’ll see how the world’s changing. But until about four months ago, most rounds are preempted. And, you know, there’s a lot of other ways to do it like that, to me is the best way. The second best way is just having a really good brand. The third best way is maybe writing a small check and being on the cap table. That is a strategy, it may not be the best strategy, but it is a strategy. So we like to track them for longer than nine months. But that’s been the media just because the pace has been really quick. And so today, it’s a lot easier, like finding the companies and get into them is like what it was 15 or 20 years ago, we had a bank of like, associates, some in their 20s cold calling founders today. The seed rounds are all published, you can reach out to the company, if it’s in the sector, they kind of know who you are, they at least say your portfolio. You know, if you’re if you can bring something relevant, and show that you understand the space, they’ll talk to you. And so that, like that friction point to me, is it at the sourcing of friction point is like, can you build a relationship and get to know the company well enough to the point where you can say like, Hey, let’s let’s do something together. Here’s what we’re thinking in terms of price. So that’s like the magic to our business. And again, it’s easier if you can focus on a sector and you can concentrate it just like kind of shrinks your world down a little bit.

Yeah, identification of startups have often pined for the sort of the Series A investor seat, because the universe of investments are readily available to you, you know, whereas about a year ago, we launched an internal technology tool that just goes around and scrapes the internet, and, you know, Form Ds and Corporation filings and LinkedIn and all these other places that it delivers sort of ranked startups to us that nobody knows exists. It’s just, you know, much harder exercise sort of sifting through the noise.

Yeah, absolutely. I what you’re doing is much harder for that identification standpoint.

So you guys combine, you know, sort of the founder led vision and strategy with your own market maps, and you have this focus on commerce, you know, up and down the stack? Is it a combined effort where you’re looking for certain types of companies to fill white spaces? Or, you know, is it often, you know, meeting the founder and letting them guide you to base that? Maybe you didn’t know, there? Were there was opportunity there?

Yeah, it’s, it’s a little bit of both. And you’ve been through this before. So typically, it starts with a hypothesis around, you know, what’s next in a sector and will market map it, we’ll try to meet with what we think are the top 10 or 15 companies in that sector. And as you go through and get to know the companies, it becomes clear, kind of who the top few are based on our hypothesis. And then, once you get there, the founder really guides us as to what approach we think will win. But it generally, it’s really hard to do the reverse. And at the leader stage where you need a company, the founder says, here’s what we’re trying to do, but you don’t, you don’t have a view of the market and the competitors and you haven’t been in that market. It’s much harder, in our opinion to pick the winner. And so we try to start with our own hypothesis, and then it can evolve. Yeah, sometimes we like whitespace, where it’s a brand new and one company sometimes will opt for sectors that are more competitive, like a red ocean sector, but we think we’ve got the best or most differentiated team and asset but always starts like it’s really a lot of top down work. Every now and then as bottoms out, you’ll find something that we didn’t think about the market that way this is interesting, and it’s like a scramble. Okay, we got to see horses in this market, understand the players the dynamics where the profit pools He’s going to win. And then like, most importantly, our stages, you know, what is our mode? What is our mode trajectory? Right? Because you and I are both betting on, you know, the growth 510 years from now. And so how their moat looks today and other business looks at it and all what it’s gonna be five years. And so predicting that motor factory is like where we spend most of our time. Interesting.

The industry is seeing sort of a valuation boom, and in 21, subsequent market compression in 22. Do you think venture capital at large should sort of remodel for more sustainable growth?

I think they will, I think it will be forced to the public market in our sectors is probably down 50 to 60%. In commerce, fintech. I mean, there’s been a complete rewriting in FinTech, the public market is, you know, any 1000s of bidders for price discovery in our market, it’s one person provides price discovery. So it’s always, you know, six to nine month lag for the private people to kind of realize, like, oh, my gosh, like, the markets change. And so it’s definitely changed. Who knows what’s gonna have the real environment, the GDP is probably going to contract and q2 based on what we’re seeing. And so our market will slow down. The thing that’s difficult is there still so much capital liquidity, you know, with these funds raised and I, I hope that as a community, we are collectively a little bit more disciplined. And really drive business models that can produce cash and 357 10 years, whatever it is, you know, we think we’ll evaluations will come in, in this environment, it’s going to take some time, I don’t know if it’s gonna be a complete reset. But right now, it’s a little scary.

See, do you guys compete directly with Tiger, Softbank, and Coatue? Or are they more coming in after you?

So we do, I mean, obviously, Softbank, and most of them we see later. So we partner with them. And we actually talk to them. And they’ve been great partners. In some instances, for us, we see Tiger with us head to head. And I would say, like, we worked with him a couple times, I find them to be very user friendly. And they have a different model than us. So they’re, they’re great providers of capital, they’re trying to pick winners. And, you know, we try to do the same thing. But we are more active investors. And so we can help serve a role for them in an investment. And we’re in a couple things and try to do that. You know, for us, it’s nice to have another partner this has got me their pockets are way deeper. And I think, you know, in the future, it’s going to matter a lot for these companies survivals. Like, who are their investors? Can they continue to back the company, are the partners you’re working with going to be the same partners are going to be at that firm for three to five years, and you have their support. And I learned this lesson in 2002, 3, 4, 5, is the people around the table matter a lot, when times are hard. When times are good, you don’t really like you don’t really think about it. And you know, again, like everyone’s incentives are differences. Some partners are incentivized for the quick sale, some are incentivized for going for the Grand Slam and never selling and trying to go public, or hoping you can go public, but you can’t. And navigating that in this market environment will become much more difficult than it was last 10 years. So all the lessons we learned 20 years ago are going to be really useful for people like us in this market. Hopefully it turns around, but right now, you know, right now, I think there’s just going to be a reset. And look, that’s okay. And I’m sure you did this. We just did this. We did a green, yellow, red of okay, like how many of our companies have cash for one year, two years, three years? Right now. And we spent a lot of time into this downturns making sure policies were fortified and taking that extra dilution with one company that, you know, doesn’t have cash for this year. But the metrics look good. And I don’t think they’re got trouble raising, we’ll put more in support them. But that exercise as people go through that for you know, I think every firm is going to do this. It’s going to expose like, where do we need to allocate capital in the future? Who are we going to support and we’re not going to support? And those decisions will start getting complicated, and they may start coming like later this year?

It’s tricky, tricky. How do you think about reserves, you know, in relation to your core position.
So reserves are such a it’s such a tough sort of not to unwind. So the way where we’ve come out now, this is in our fourth Fudd is we reserve pretty heavy so we reserve about 25% and Nick for growth fund that’s a lot versus maybe venture might reserve 40 or more. And the way we think about it is it’s an offensive tool that a defensive tool. So if it assets performing maybe our initial checks 25 is performing we will use those reserves put in another 25 right, and double our position size and push our concentration limit up to that 20% threshold and the winning asset. So we try to reserve more to the offensive. And so of the capital All, let’s say in this reserve, I don’t know 70 to 80% of it will be offensive or 80%. And then we’ll see like 20, 25, 30 for defense, just to protect that asset, but it reserves is never perfect. If you have some winners, we can run out of reserves pretty fast just because we’re a smaller funds, you got to you’ve got to be careful.

Interesting. I’d like to talk a bit about last mile logistics and supply chain, one of your firm’s key focus areas I know that you guys invested in JOKR, which apparently lost $159 per order last August, publicly available data. So JOKR owns the delivery process end to end from inventory to delivery. When do you expect unit economics to flip? You know, on a full stack business like this? And how do you underwrite it with that sort of, you know, negative margin profile?

Yeah, so okay, it’s just stepping back, like, our belief was that Amazon took us from expecting deliveries in seven days to two days to one day, the same day, and we’re going to keep impressing that the Gen Z sort of mindset is a well spend money to save time, and more so than like, the Gen X and certainly the boomer mindset. So that’s sort of our core belief. Another core belief is that superior supply chain, when you’re dealing with hard goods, tends to win out. So supply chain fulfillment, if you just execute those really well, because those are hard things to execute, you can win. There were a lot of players when we invested, first invested in JOKR earlier last year. And we met with a lot of them, there are a couple that I think are very good. But what you’ve had now is you kind of have the haves and the have nots, were quick call it’s quick commerce or like full stack supply chain commerce. And it’s, you know, this could Tear Gorillas, flank, and JOKR, and they’ve all raise significant capital, I think they’ll probably be survivors. They’re all good companies. We’re JOKR differentiated in a couple hours, we just really liked the team. Ralph and his team from food panda are incredible. They’ve done it before. We like the intensity and the pressure they bring we like their culture, their culture is one of adoptability accountability, which is something we really like. And they’re doing a great job in Latin America, and you look at the season warehouses in Latin America, those show a path to this business working and being very profitable. The US is still a ways away from that. And I believe Europe is as well, just because the competition levels are a lot higher and the you know, the infrastructure costs, the cost of employees is different, then, you know, JOKR takes the approach that they want primarily W2 employees. So you’re not are being sort of the 1099 W2. And we think that’s the right way to do it. But yeah, long term, we definitely think this can work. Retention rates are pretty amazing. Like once people start using this type of product, they tend to reuse it, because it’s very convenient. And the other thing JOKR does really well, is they and this is I think, you know outside of the team the culture is they understood supply chain, they control their whole supply chain so you’re not sending Instacart out to grab something for you know, I forgot about GoPuff. GoPuff’s the other out in that group and you have this one, apologize to any GoPuff. Those are the haves also a great business. But we found JOKR did really well is he just on the supply chain. And that’s powerful. When you have a trusted supply chain, you know, you’re going to get organic blueberries, you’re not going to be damaged in all they’re going to be from our warehouse, directly sourced from a sorting facility that we manage our own.

Is ultimately product overall product experience just better when you own everything, or do you think the economics ultimately are going to be much stronger because of that?

I think that the consumer experience will be better which then will result in better economics as you have repeat user so you don’t have to acquire them again. So if you get everything you order versus someone going through and picking and packing from someone else’s warehouse or a grocery store, like on the app in real time if we know our inventory so we’re not going to you know you’re going to get what you order what you order is going to come from our facility so we can quality control that’s just delivers a better experience. So look, we saw this movie before with Cozumel calm and San Francisco and I used to order from it I get like a CD, a three iron and a bucket of ice and they would bring it it was incredible and that that company did not work. But like a lot of sort of web one companies and now work in what two or three or version two or three. This is no different like we can make this work. So and that by the way those unit economics in August. I don’t know if those are right or not. But when you’re starting your unit economics like really bad Businesses much larger into the economics, obviously, you get the benefit of scale. And you’re advertising those fixed costs over more orders.

Just to make sure I got the point correctly, on the unit economics side, you saw instances within Latin America with really healthy unit economics. And you feel like the the other sites in the Americas will mature and get to that same healthy economic profile.

Yeah, so on a unit level basis, we like with a little bit of maturity, those warehouses are, we’re working in Latin America. And it was very easy to draw a curve to see how that would get there. In the US, it’s going to take longer, and it’s gonna be all about like, customer happiness, repeat usage, and who the customers like to use. I think this product is here to stay. But you know, I only think there’s room for one or two winners in each market.

Interesting. We actually have the co founder of Grub Hub in our portfolio with his new business took a bit of a different approach, you know, to food delivery at the time, but that was also a different era. Steve, any other thoughts on sort of supply chain and logistics?

Yeah, I mean, I, I’m we’re very bullish on supply chain logistics. That’s one area where we think in this environment, this market supply chain is going to be critical. So our fulfillment supply chain companies are doing phenomenally well. We’re seeing growth across the board. That is an area where we’ll pay up in this market to for high quality assets. And it’s not just in the US, we’re looking in Europe as well. We’re, you know, FinTech, we are looking, FinTech had quite a run. It’s had quite a rerating and, you know, in FinTech, where we see there’s a lot of sort of old, you know, ways of doing things with the new skin on it, or a new app. And those early movers that thought that a lot of customers are going to win, but like the fast followers, we think are gonna have a harder time. So supply chain right now, for us is a very interesting space.

You mentioned the European office a couple of times now. Yeah, we’d love your thoughts on Europe. You know, I saw a tweet recently that 12 billion euro was deployed in January of this year on the continent. I’m curious, do you think European venture capital just lags behind the US but can be, you know, as big or at that scale? The old trope in venture capital is Europe is not a country. So be careful, you know, with investing in Europe. So I’m curious, do you think that, you know, European VC and tech will, has the ability to kind of reach the level of liquidity, for lack of a better word that occurs here in the States?

I’m not sure if we’ll ever match it, but it’s gonna get closed. So your venture capital communities much smaller for a long period of time, great seed, and early stage funds at less sort of growth capital, or later stage capital, as you know, for a while. We were early investors in Hybris, which sold SAP back in was invested in 2011. We invested in new store out of Berlin, and I think 15, which is founded by Stefan Schambach, who founded Demandware, you know, in Europe, about 10 years ago, you know, even though they graduate more STEM graduates than we do in the US. So science, technology, engineering, maths, math grads, if they didn’t have the same level of company creation, and there’s a lot of reasons, yes, it’s multiple countries, but you didn’t have a lot of sort of like, you couldn’t go hire a VP, avenge 10 years ago, where they were hard to find or VP of marketing or sales. Now, you’ve had a lot of these US companies. They’re like CEO of Adobe, and Google and Microsoft, and Amazon and Tesla. And they’ve got a lot of senior managers. And obviously, it has some successful European native companies like adient. And they have like solonius, and Berlin and others. And so if you need to go find like that senior manager, VP, they exist, they’re as good as anyone in the US and they’re plentiful. Right. And so that wasn’t the case a long time ago. And so the combination of great stem grads, deep pools and of SMART Capital at the early stage, and the ability to scale management teams has now changed the texture in our mind in Europe. And so we think the pace of unicorn creation will be faster in Europe, than even China, although not sure, because it’s hard to tell what’s going on now, but certainly faster than the US. So we’re very bullish on Europe. You know, there are some downsides to Europe and your point about like, it’s not a country. So we build a sales organization, it’s going to cost you roughly seven to 10 points of revenue for a scaled business to get offices and you know, Benelux and dock and Spain, Italy, Portugal. So, you know, the cost can be a little bit higher, but those businesses are usually built from the ground up to scale globally, better than US companies who really just attacked this market. So, like audience is a great example. It’s just a brilliant business. They set it up from day one to be global because they had to. And they’ve been dominant payments, I think they will continue to do very well in the future. So, but anyway, yeah, we’re really excited to be in Europe, we opened an office in Berlin very early last year, we’re invested in it. And now you’ve seen is a lot of US firms are in Europe, some have been there for a long time. A lot of recently moved like Sequoia to London, we may open an office in London someday, but to start, we just wanted to be on the continent, because we’re in really New York area, getting to London is like an hour longer than going to San Francisco. So we’ve been covering that market for a long time already. But we’re excited to be there.

Stating the obvious here, you know, we have kind of major geopolitical conflicts going on in Europe at the moment, any thoughts on how that may impact the next few years of tech and VC?

So I will tell you the mood, the European mood for this conflict is very different than the US. So obviously, we’re all concerned here are worried it’s keeping people up at night, you know, we hope it doesn’t escalate. But if you’re in Europe, it’s just for them. And it’s just much closer, much more real conflict, because it just the geography is different. So I think there’s a level of stress over there. Senseney is just much higher with some of the founders and the people we talked to. And I think there’s a high level of concern that this could, it could potentially get worse. And obviously, we all hope it doesn’t. But I think that Europe has much more stress in the US right now. Both an individual on a country basis. So thanks.

Well, you know, it’s a challenging time for sure. And it’s not all about tech and venture, it’s more about the human cost. But we certainly, I mean, even in our portfolio, we’re hearing a lot of stories about the folks over there that are affected. So let’s hope it doesn’t escalate from where it’s at, you know, changing gears here a bit. Steve, I did want to get sort of your input on the state of E commerce. Of course, there was a lot of big shifts in 21, you know, coming off major data privacy changes, and this allowing, you know, much of the tracking that big tech and E commerce companies relied on. Also, with deprecation of third party cookies coming in Google Chrome. Soon, we’ll have you know, more, more changes coming. So you know, in your estimation, you know, what are the biggest challenges and, and opportunities for E commerce and sort of this, this new era of consumer privacy?

First of all, like I think, you know, if you look at COVID, COVID, pulled forward a lot of econ demand, but what COVID really did, and I’ll speak just to the US right now, is it brought people so call it maybe older Gen X and Boomers, to the place for the Gen xennials are in terms of use of E commerce, so using their apps ordering online. And that was a quantum shift, it was really sort of bringing everyone else was may be hesitant to be in the column in the column. And so now that we’re here in the US, like, the opportunity is amazing. Every company now is a tech company. Every company that hasn’t transitioned is doing some sort of digital transformation trying to figure out how do we sell online? And that’s not just selling online. It’s like, how do we give other business if it’s b2b, that business person, the same sort of consumer experience they have when you use Amazon are really a really good consumer app. So from that standpoint, we think that even in this market, like supply chain, econ infrastructure is going to continue to grow. In terms of privacy. You know, most of our companies are prepared for what’s happening with cookies. And you know, we’ve already been through GDPR. There’s other ways to like opt in and identify, track and personalize if people want want that sort of level of personalization. You know, we’re invested in obviously, a checkout company that is optimized for managing, you know, through account creation and making it easy to give you that Amazon experience, whether you’re on like a retailer site or anyone site. But in terms of specific opportunities in ecommerce. I think it’s sort of bringing the old line players to the level of experience you have with Amazon clean, simple, one click. And that’s not just the site, but then its fulfillment. So one today, same day fulfillment, and it’s at full stack and so look like Amazon has done such a good job but like, like Walmart did the 80s 90s they’re putting a lot of other companies out of business and or brands. And so what you’re gonna see is, and we have seen these individual brands arm themselves with the same weaponry that Amazon has. And so we’re kind of like arms dealers in econ. We’re all trying to level the playing field against Amazon and like anyone with a brand whether you’re you’re in a mall Your department store your selling shoes, they realize they just can’t give up that user experience that customer information, all the data to Amazon because Amazon will eventually just eat their lunch charge and more fees, recreate their products sold under a different brand. So we’re pretty excited about that market, generally. So, you know, bring that experience, they have that experience, and then focusing on fulfillment.

Yeah, I feel like there could be a venture fund, top decile performing venture fund that all they do is take technologies built within Amazon and commercialize them outside. Totally. Yeah, very recently, we’re just looking at payment carousel technology that cycles, payment providers, and it’s fascinating stuff. And the question was, are there any large companies doing this? Amazon is the only one?

Yeah, I mean, it’s also scary when you’re investing and competing against, you know, probably one of the best run company on the world. But the mart, you know, like, the markets have big and you have areas of the world like Latin America, where ecommerce is growing extremely fast, right. So it’s smaller numbers, but hyper growth in China, which is probably four or five years ahead of us in terms of the way they they interact with their phone, their apps, their money purchasing. There’s been a lot of lessons, actually from China that we’ve learned and apply them in the US. But yeah, I agree. I mean, applying the same tool to Amazon uses is it’s a powerful investment thesis.

So Steve, this question is called three data points. I’m going to give you a hypothetical situation with startup, you can ask three questions for three specific data points. Let’s say your approach to invest in a growth stage logistic startup companies based in New York, they have 4 million ARR are growing 15% month over month. And again, the catch is you can ask three questions for three specific data points, in order to make your investment decision. What three questions would you ask?

You said supply chain logistics. Can you tell me like what part of supply chain or logistics do they operate in?

I mean, let’s say it’s last mile delivery last mile. An area you have no experience in.

Yeah zero. Haha. I don’t know anything about? Totally. Just like why did the founders start this company? Like what? What was driving them to to build this?

Okay, question one. What’s number two?

I want to understand to 15% month over month of that size. ARR is basically 15% annualized. So that’s not growing very fast. So there’s, there’s some sort of friction or issue with their business model. So I need a few questions to poke around there. But I want to probably ask about the retention rate or repeat usage, because there’s probably my guess, is a lot of churn either with the supplier or the buyer. And then the last question, I would ask them just to describe their culture, in their own words, and see what they say and leave a really open ended. And the reason is like culture always provides like a great guidepost for judgment and understanding, like what stories internally are important to that company? What are them they memorialize? What do they distance themselves from can tell you a lot about like, the important things like, how do you allocate capital? How do you incentivize people? You know, how do you make those decisions? So that’d be that’d be the open ended way of trying to determine that. Because you cannot just say, how do you allocate capital where you put it product or marketing? You get an answer, but you don’t really get the why.

Interesting, and you feel like most companies at the same time that you you invest have a pretty defined culture and define principles?

No, it’s forming. So under 40 people, employees, it’s still forming over 40 tends to calcify. And so it’s, we can actually, it’s hard to be a part of the culture formation, but at least like, provide our view of it if they’re interested. And, you know, if it forms in a way, like you see a lot at the board level, like the culture, the board sometimes permeates the business, but you only find that out after, after you’re on the board. So you try to guess what it’s gonna be like. And then if it’s not what you and I would look for so accountability, transparent, like good capital allocation, then you can address it and talk about it and hopefully everyone’s receptive and open adult conversation was not always easy. People have it’s a thing that people have opinions of, and so, opinion and discussions always harder than fact based discussions, but that’s okay. That’s our job.

Steve, if we could feature anyone here on the show, who do you think we should interview and what topic would you like to hear them speak about?

Maybe Scott Galloway about anything?

Anything in particular?

Tony Fidel, maybe I love his story. I just I love hearing people that are very forward to speak their mind that have just got a lot of scar tissue. I think like, we learned so much from people like that.

Steve, do you have any tools or hacks that are a secret weapon?

Probably just like the ability to kind of keep going. So Winston Churchill said during World War Two, like “when you’re going through, hell keep going.” And I’ve built quite a resiliency to many number of things. And again, I think that that’s important for founders, like it’s just hard that things happen. And you get to pick yourself up and just keep calling, like, 80% of it’s just being there, right, being present, showing up to try to do the right thing. But yeah, that’s probably my superpower is just resiliency.

And finally, here’s the what’s the best way for listeners to connect with you and follow along with activists

Hit our website Activantcapital.com. We throw a lot of events at conferences. And so you know, love to see people at those. We’re not super active on Twitter. Maybe we should change out to be more visible that right now or kept the lower profile, but you definitely can hit us up on our website.

Well, I learned a lot today, Steve, I appreciate the transparency and walking us through some of the background on the firm and how you guys make decisions. This is a true pleasure. Appreciate your time.

Thanks, Nick.

Transcribed by https://otter.ai